Derivatives desks were snapping up Swiss francs in the spot and options market to cover option positions they had executed over the last month. "The market was caught with its pants down," said Lars Ahlgreen, senior foreign exchange trader at Crédit Agricole Indosuez in London, explaining that most traders were short the Swiss franc. Over the last several weeks traders had been executing one-touch barrier options with strikes between CHF1.58-1.60.
Traders predicted that if the Swiss franc breaks the CHF1.60 barrier there will be a frenzy of option buying to cover new positions. One-month implied volatility, however, has remained rangebound, trading mainly between 4.5-5.5% in euro/Swiss and 10.5-11.5% in dollar/Swiss.
Ian Stannard, foreign exchange strategist at BNP Paribas in London, is still bullish on the euro/swiss despite the single currency's recent pull back. "The Swissie will remain under pressure over the medium term," he said, adding, "There is still a lot of foreign funds in the Swiss money markets left over from the safe haven move which have not been unwound."
BNP Paribas forecast for euro/Swiss is CHF1.54 for the end of Q3 and CHF1.53 for year end. It has dollar/Swiss at CHF1.28 and CHF1.33 for the same dates.
USD/CHF Spot And One Month Implied Volatility
